Government to Borrow Cautiously Under New Act

Solomon Islands Minister of Finance and Treasury, Hon Rick Hou, announced that the new Public Financial Management Act will facilitate better decisions on Government Borrowing, On-lending and Guarantees.

Minister Hou said that the Act contains key elements of the Government’s Debt Management Strategy (DMS) and meets undertakings made to Honiara Club members to include the main aspects of the DMS in this legislation. The Honiara Club is the group of donor countries and agencies that helped restructure Government debt in 2005.

He clarified that the new Act formalizes the establishment of a Debt Management Advisory Committee (DMAC), which will advice the Minister on all new debt-related proposals. The Committee will comprise executives from the Ministry of Finance, the Central Bank of Solomon Islands, the Ministry of Development Planning and Aid Coordination and other Government Agencies.

The Act provides that any borrowing must take into account the Government’s borrowing capacity as will be spelled out in its fiscal strategy, DMS and annual borrowing limit. It will also ensure that fees and charges will be imposed on guarantees and on-lending arrangements to cover the cost and risk of administering them.

Furthermore, Minister Hou also said that the new Act also requires that Government should set aside a portion of its domestically sourced revenue in a debt servicing accountfor servicing its loans. New borrowing will be for high priority infrastructure and development projects that will have long lasting benefits for the Solomon Islands people, but the Act does not allow Government to borrow for planned budget deficits in recurrent expenditures.

The Act will now require that all Provincial Governments, State Owned Enterprises and the Honiara City Council obtain the consent of the Minister before undertaking borrowings. The Act sets out that they will have to provide audited financial statements and show that their NPF and tax payments are up to date before being allowed to borrow. This is intended to assess whetherthey are in a good enough position to borrow and repay, and not be a financial risk on Government.

Minister Hou reiterated that the Act provides rules and guidelines for borrowing decisions so that the reason for borrowings are for a fit purpose, will help to strengthen the economy, is affordable and sustainable and will not pose unacceptable risk to the Government.

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